Injunctions as insurance Featured

7:21am EDT June 30, 2006
In today’s fast-paced business world where companies are trying to beat the clock and competition and where executives buy out their competition’s best employees for the best ideas, you must protect your assets.

Employees often are asked to sign a nondisclosure agreement when they are working on a ground-breaking idea or project. This is meant to prevent a person from leaving one company and providing a second company with the first company’s ideas. There are still instances where these things happen, and they can be devastating to the future of a company.

Injunctions are a type of lawsuit used to protect both ground-breaking ideas and products. Smart Business spoke with Tony Paganelli, a partner at Sommer Barnard PC, about how to use this type of lawsuit.

How are injunctions used?
Injunctions are orders used to prevent a defendant from doing something that the plaintiff alleges will destroy or permanently harm its business before a lawsuit gets to trial. If a small computer company comes up with a new program and someone working on that project leaves the little company and leaks the idea to one of the larger leading companies in the market, the larger company will be able to use its power to introduce the product to the market first. This could in turn kill or shut down the smaller company completely.

This type of lawsuit is used when financial settlement is not good enough, because monetary value cannot be placed on the situation. It is also used when awarding money after a lawsuit is useless in saving a company.

Preliminary injunctions are used to freeze’the status quo while parties litigate their dispute. Permanent Injunctions are court orders that require a defendant to do something that it agreed in a contract to do, or prohibit a defendant from doing something such as infringing on a patent or competing with a former employer.

On what grounds can a company file an injunction?
Although the requirements vary from state to state, a party that seeks a preliminary injunction generally has to prove four things.

  • The existence of irreparable harm - This means whatever the defendant is doing is so bad or harmful that an award of money at the end of the case will not remedy the situation.

 

  • The likelihood of success at trial - A court will not give an injunction to a party who will likely lose the lawsuit in the end.

 

  • The balance of harms favors the plaintiff - Meaning the party on the receiving end of the injunction will not be hurt more by the injunction than the plaintiff would be if the injunction is not entered.

 

  • The public interest is favored by the injunction - The injunction sought by the plaintiff advances some public policy goal, such as the enforcement of valid contracts or the protection of patent rights, and the public will not be harmed by the injunction.

How does an injunction benefit a company?
A preliminary injunction protects a company that cannot wait until the end of a full-blown lawsuit to recover monetary damages. This occurs when the conduct by the defendants is so harmful that it will quickly kill or cripple the company. A permanent injunction protects nonmonetary rights such as noncompete agreements, patent rights or other trade secrets. It can also force a defendant to perform its contract obligations when other alternatives are not available.

Sometimes an injunction can indirectly determine the outcome of a trial in a shorter time frame. The plaintiff’s lawyer in a new or existing lawsuit files a motion asking the court to schedule an injunction hearing on a highly expedited basis. Much of the lawsuit is then compressed from 12 to 18 months into 30 to 45 days.

How can filing an injunction be a risk to a company?
A company that unsuccessfully seeks an injunction suffers a major loss of momentum in any litigation. Furthermore, the ruling on the injunction request is often a good indication of how the judge views the case, and may be preview of how the court can be expected to rule at trial. A fast-paced and intense schedule causes injunction litigation to be very expensive. The fast pace also does not allow for much time to prepare. Lawyers must devote all of their time to an injunction for it to be successful.

If a company is granted an injunction, it is required to post a bond that the defendant can collect from if, at the end of the case, it is ruled that the defendant was doing something legal and could have been making money during the period of the injunction.

TONY PAGANELLI, a partner at Sommer Barnard PC, concentrates his trial and arbitration practice in four areas: business litigation, criminal defense, real estate/construction litigation and bankruptcy/debtor-creditor litigation. Reach him at tpaganelli@sommerbarnard.com.